Unlocking Home Value: Exploring Equity Release and Lifetime Mortgages in 2018
Equity release has become an increasingly popular financial product for homeowners in recent years, particularly as a way to unlock the value tied up in their property without having to sell it. However, there remains some confusion about what equity release entails, how it differs from a lifetime mortgage, and how interests like life interest trusts come into play. This article will explore these concepts in depth, with a particular focus on interest rates in 2018.
Understanding Equity Release Essentials
Equity release comes in two main forms: lifetime mortgages and home reversion plans. A lifetime mortgage is the most common type, allowing homeowners to borrow against their property while retaining ownership. The loan and accumulated interest are typically repaid from the property’s sale when the homeowner passes away or moves into long-term care. Modern equity release products often include features like negative equity guarantees, ensuring borrowers never owe more than their home’s value.
Lifetime Loans Explained
Lifetime mortgages offer flexible borrowing options, including lump sum releases or drawdown facilities. With a drawdown lifetime mortgage, homeowners can access an initial amount and reserve additional funds for future use. This approach can help minimize interest accumulation since interest is only charged on the money actually borrowed. Most lifetime mortgages now offer optional monthly interest payments, helping borrowers maintain control over the loan’s growth.
Home Reversion Insights
Home reversion plans involve selling part or all of your property to a provider while maintaining the right to live there rent-free. Unlike lifetime mortgages, these plans involve selling a share of your property at below market value in exchange for a tax-free lump sum or regular payments. This option typically suits older homeowners who prioritize certainty about their remaining property share over maximum value.
Interest Trends and Market Development
The equity release market has evolved significantly, with interest rates becoming more competitive. Fixed rates are common, protecting borrowers from future rate increases. Many products now offer early repayment options with reduced or waived penalties during specific periods, providing greater flexibility for changing circumstances.
Current Market Providers and Product Comparison
| Provider | Product Type | Key Features | Typical Interest Rate |
|---|---|---|---|
| Aviva | Lifetime Mortgage | Downsizing protection, inheritance guarantee | 3.75% - 4.25% |
| Legal & General | Drawdown Lifetime Mortgage | Flexible withdrawals, optional payments | 3.90% - 4.40% |
| More2Life | Enhanced Lifetime Mortgage | Higher LTVs for medical conditions | 3.80% - 4.30% |
| Pure Retirement | Drawdown Classic | No negative equity guarantee, fee-free advice | 3.70% - 4.20% |
Prices, rates, or cost estimates mentioned in this article are based on the latest available information but may change over time. Independent research is advised before making financial decisions.
Making an Informed Decision
Equity release is a significant financial commitment requiring careful consideration of personal circumstances, alternative options, and long-term implications. Consulting with an independent financial adviser who specializes in equity release is essential. They can provide personalized advice based on individual circumstances and ensure all alternatives have been explored, including downsizing, savings, or other forms of borrowing.
The decision to release equity from your home should be made with full awareness of how it might affect your tax position, benefit entitlements, and the inheritance you leave behind. While equity release products have evolved to offer greater flexibility and protection, they remain a long-term commitment that requires thorough understanding and professional guidance.
